The doghouse: Italian consumer associations protest pasta prices

I have recently picked on the follies committed by the United States, Venezuela and Slovenia. Today, however, a new target presented itself: Italian consumer associations protesting recent increases in pasta prices.

Unless you've been living under a rock, you might have noticed that wheat has become more expensive this year. This is because, as a result of droughts in Australia and Canada, world stockpiles of wheat have reached a 26-year low. When this sort of thing happens - when resource X is less available than there are people interested in consuming it - then two things can be done:
  • One, resource X can be distributed to those people who are willing to trade the most other resources for it. In other words, each resource goes to people who most appreciate it, and are willing to demonstrate that by paying the most. This principle forms the foundation of our market economies and is the source of our economic well-being.
  • Two, resource X can be distributed to people according to some other principle. For example:
    • The government could have everyone queue for the resource. Everyone would stand in line for five, six hours. Then the first N people would get the wheat, and all the others would go without. People who don't get wheat would have to pay the people who got it in order to get some.
    • Or, everyone could get a "fair" fixed share of wheat, whether they want to have wheat or not. Then, those who want to trade wheat for other things could do so on the flea market.
It has been empirically shown that the first solution - letting the market do the distribution - is the efficient and superior one, whereas other solutions - such as queueing or rationing - create a distortion that removes economic incentive, encourages passivity and causes poverty. Therefore, when the world's reserves of wheat decline, it is only natural that the price of wheat will go up. When the price of wheat goes up, it is only natural that prices of all products made primarily of wheat will rise, too. Therefore bread becomes more expensive; chicken feed becomes more expensive; and pasta becomes more expensive, too. This is a natural consequence of world's wheat stockpiles declining, and the prices are a mechanism that ensures that the wheat that remains is directed to the places which are most entitled to receive it and which want it most.

Enter the Italian consumer associations. They propose that, in protest to rising wheat prices, Italians stop buying or eating pasta for a day. And then the government should intervene and reduce the growing pasta prices.

Economically, actually intervening to reduce the pasta prices would be one of the stupidest things the Italian government could possibly do. Intervening to reduce pasta prices wouldn't change the fact that there is a worldwide wheat stockpile shortage. Nor would it change the fact that prices of wheat worldwide are high as a result. Instead, what it would cause is that in Italy, pasta would simply have to stop being manufactured, imported and sold. If the government requires you to sell pasta at a price that doesn't allow you to pay for the wheat required, then the only thing you can do if you don't want to lose money is to not make any pasta at all.


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